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What’s the best way to incorporate your business?

Fred Wilson (Co-Founder and Partner at Union Square Ventures) From The MBA Mondays Archive – AVCFlow through corporate entities don’t pay taxes, they pass the income (and tax paying obligation) through to the owners of the business. Tax paying entities pay the taxes at the corporate level and the owners have no obligation for the taxes owed. Your neighborhood restaurant is probably a “flow through entity.” Google is a tax paying entity. When you buy 100 shares of Google, you are not going to get a tax bill for your share of their earnings a… (read more)

Fred Wilson (Co-Founder and Partner at Union Square Ventures) From The MBA Mondays Archive – AVCThe key distinguishing characteristics of a LLC is that you get the limitation of liability of a corporation, you can take investment capital (with restrictions that we’ll talk about next), but the taxes are “flow through”. Most companies, including tech startups, start out as LLCs these days. Owners in LLC are most commonly called “members” and investments or ownership splits are structured in “membership interests.”

Fred Wilson (Co-Founder and Partner at Union Square Ventures) From The MBA Mondays Archive – AVCAs the business grows and takes on more sophisticated investors (like venture funds), it will most often convert into something called a C Corporation. Most of the companies you would buy stock in on the public markets (Google, Apple, GE, etc) are C Corporations.

Fred Wilson (Co-Founder and Partner at Union Square Ventures) From The MBA Mondays Archive – AVCA nice hybrid between the C corporation and the LLC is the S corporation. It requires a simpler ownership structure, basically one class of stock and less than 100 shareholders. It is a “flow through entity” and is simple to set up. You cannot do as much with the ownership structure with an S corporation as you can with a LLC so if you plan to stay a flow through entity for a long period of time and raise significant capital, an LLC is probably b… (read more)

Ryan Howard (Founder @ Practice Fusion) Transcript: Protecting yourself as the founder; Ryan Howard | VatorNewsLastly, this doesn’t apply to everyone, but a C-corp makes decisions on what’s best for its shareholders and in contrast, many people here are starting healthcare based companies and they have social impact and social good, so one thing you can potentially do, this is a bit of an outlier, but you should consider potentially being a benefit corp, when they make decisions, they make decisions on what’s best for the community. A lot of financial dec… (read more)

Sam Altman (President at Y Combinator) Startup PlaybookAs a tactical point, you will usually need to be a Delaware C Corporation to raise institutional capital, so its best to just incorporate that way.

Fred Wilson (Co-Founder and Partner at Union Square Ventures) From The MBA Mondays Archive – AVCWhen you start a business, it is important to recognize that it will eventually be something entirely different than you. You won’t own all of it. You won’t want to be liable for everything that the company does. And you won’t want to pay taxes on its profits. Creating a company is implicitly recognizing those things. It is putting a buffer between you and the business in some important ways.

Fred Wilson (Co-Founder and Partner at Union Square Ventures) Kickstarter, PBC – AVCThere are those who say that Benefit Corporations and venture capital are not compatible. We don’t agree and we think companies that align their values with their customers and communities will benefit over the long term, not suffer. And that alignment can produce value for shareholders sustainably and profitably.

Fred Wilson (Co-Founder and Partner at Union Square Ventures) From The MBA Mondays Archive – AVCAnd most of all, get a good lawyer and tax advisor. Though they are expensive, over time the best ones are worth their weight in gold.